Monopolistic Competition.. A market with monopolistic competition is the second-most competitive market type. It is characterized by a large number of sellers and few barriers to entry or exit. Competition occurs in the form of product differentiation. By branding, firms hope to convince buyers of the uniqueness of their products. Advertising and packaging are essential to branding. In perfect competition, perfect information is freely and easily available to everyone; by contrast, in monopolistic competition, firms must rely on some amount of consumer ignorance in order for their advertising to be effective. The aim of product differentiation is not merely to make a one- time sale. Firms want consumers to develop brand loyalty. If a consumer believes that a particular brand is superior, then she will be unlikely to consider other suppliers' products as substitutes. With fewer substitutes available, demand becomes price inelastic. If a firm can successfully differentiate its product, it can earn above- normal profit in the short run. In the long run, most firms will earn normal profits. 2.31 IN BRIEF Mark my words. Write a brief response to each of the following questions about a market with monopolistic competition. 1. How many buyers and sellers are there? 2. How easy or difficult is it for a new seller to enter the market? 3. How different is one seller's product from the next? 4. What are some of the techniques sellers use to try to differentiate their products?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Transcribed Image Text:Monopolistic Competition.. A market with monopolistic competition is the second-most competitive market type. It is characterized by a large number of sellers and few barriers to entry or exit. Competition occurs in the form of product differentiation. By branding, firms hope to convince buyers of the uniqueness of their products. Advertising and packaging are essential to branding. In perfect competition, perfect information is freely and easily available to everyone; by contrast, in monopolistic competition, firms must rely on some amount of consumer ignorance in order for their advertising to be effective. The aim of product differentiation is not merely to make a one- time sale. Firms want consumers to develop brand loyalty. If a consumer believes that a particular brand is superior, then she will be unlikely to consider other suppliers' products as substitutes. With fewer substitutes available, demand becomes price inelastic. If a firm can successfully differentiate its product, it can earn above- normal profit in the short run. In the long run, most firms will earn normal profits. 2.31 IN BRIEF Mark my words. Write a brief response to each of the following questions about a market with monopolistic competition. 1. How many buyers and sellers are there? 2. How easy or difficult is it for a new seller to enter the market? 3. How different is one seller's product from the next? 4. What are some of the techniques sellers use to try to differentiate their products?

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